[ A L G O R I T H M I C T R A D I N G S U R V E Y ]
majority of their portfolio under market stress for all the reasons discussed previously . With more automation transforming trading desks across the industry , the buyside prefers to trade consistently and efficiently .
In terms of the types of algos that hedge funds have been adopting for their trading strategies , Figure 6 shows that the most popular algo strategies are “ dark liquidity seeking ,” followed by “ VWAP ,” even though the percentage of the responses for “ dark liquidity seeking ” slightly declined by two percentage points to 68 %. Interestingly , the percentages for most algo usage have decreased , except for the “ other ” category . The only algo to have recorded the same percentage since 2020 is " percentage volume ( participation )". The algos that recorded the largest decrease in adoption were “ implementation shortfall ( single stock )” and “ TWAP ” by dropping 10 percentage points each , to 44 % and 27 %, respectively , in 2021 .
Figure 5 : Algorithm usage by value traded (% of responses ) |
Feature |
2021 |
2020 |
Not answered |
5.14 |
3.70 |
0 - 5 % |
3.70 |
3.29 |
5 - 10 % |
6.17 |
6.17 |
10 - 20 % |
4.73 |
5.35 |
20 - 30 % |
9.05 |
4.94 |
30 - 40 % |
8.85 |
6.17 |
40 - 50 % |
8.44 |
13.99 |
50 - 60 % |
7.82 |
16.05 |
60 - 70 % |
12.76 |
21.40 |
70 - 80 % |
12.96 |
8.64 |
> 80 % |
20.37 |
10.29 |
Figure 6 : Types of algorithms used (% of responses ) |
|
|
Feature |
2021 |
2020 |
Other |
6.58 |
4.94 |
Implementation shortfall ( basket ) |
10.91 |
15.64 |
TWAP |
27.16 |
36.63 |
Implementation shortfall ( single stock ) |
44.24 |
53.91 |
Percentage volume ( participation ) |
56.38 |
56.38 |
VWAP |
58.64 |
62.14 |
Dark liquidity seeking |
67.49 |
69.96 |
Methodology Buy-side survey respondents were asked to give a rating for each algorithm provider on a numerical scale from 1.0 ( very weak ) through to 7.0 ( excellent ), covering 15 functional criteria . In general , 5.0 ( good ) is the ‘ default ’ score of respondents . In total , a record number of 1,468 ratings were received across 36 algo providers , yielding thousands of data points for analysis . Only the evaluations from clients who indicated that they were engaged in managing hedge funds or using hedge fund strategies have been used to compile the provider profiles and overall market review information . Each evaluation was weighted according to three characteristics of each respondent : the value of assets under management ; the proportion of business done using algorithms ; and the number of different providers being used . In this way the evaluations of the largest and broadest users of algorithms were weighted at up to three times the weight of the smallest and least experienced respondent . Finally , it should be noted that responses provided by affiliated entities are ignored . A few other responses where the respondent could not be properly verified were also excluded . We hope that readers find this approach both informative and useful as they assess different capabilities in the future . As in 2020 , this year ’ s analysis for the Algorithmic Trading Survey was carried out by Aite Group .
68 // TheTRADE // Summer 2021